BUSINESS INSIDER -- From the Mailbag -- When a Mutual Fund Goes Ex-Dividend / Also, insider sales, the Pacific Exchange and short selling

Herb Greenberg

Published
4:00 am PST, Saturday, December 13, 1997

First up this week are Derek C. and David L., who are confused about the sudden drop in the prices of their mutual funds. Derek owns shares in Berger 100, which fell more than $7, or 34 percent, in a single day. "When I called Schwab to make sure the quote I had was right, they said the mutual fund ex-dividended, or something like that."

Meanwhile, David saw the value of his Putnam Growth & Income fund drop $2.30 in one day. The next day he looked in the paper, and saw an "x" next to the fund's name. "I saw that stood for ex-dividend. Would you please tell me ex-dividend means?"

Sure, when a mutual fund declares a dividend or capital gains distribution, it goes "ex-dividend."

The distribution represents your share of the fund's income or capital gains from the sale of securities.

Once that distribution is declared, the fund's share price drops by the amount of the payout. The fund stays ex-dividend until the distribution is actually paid. While it's ex-dividend, any new investors aren't eligible for the distribution.

Remember that you haven't lost any money when the share price drops following a payout: the amount of the decrease goes from the fund to you.

Don't be surprised if you see lots of big payouts this year, as funds sell shares that have registered big gains. Berger 100's unusually large distribution is the result of a new portfolio manager's decision to get out with the old, and in with the new.

And this tip: If the fund isn't in a tax- deferred retirement account, and you don't want to pay taxes on the gains from investments you never owned, beware of buying before the dividend. In his book, "Bogle on Mutual Funds," Vanguard Chairman John Bogle says, "you should never purchase shares of a fund immediately before it distributes a substantial capital gain."

MESSAGE CENTER

-- Memo to Vijay, who wonders about the purpose of a Form 144 filing with the Securities and Exchange Commission: It's merely an indication that insiders -- officers or directors -- may sell stock in their company. But 95 percent of the time, the stock already has been sold by the time the filing is made public, according to Bob Gabele, editor of Invest/Net's Insiders' Chronicle newsletter.

Such a filing doesn't obligate the insider to sell, however.

One other thing: Form 144 filings include a stock price, but that's not necessarily the price at which the stock was or will be sold. Gabele says it's merely the closing price on the day of the filing.

-- Memo to Margaret S., who wants to know if I can explain the Pacific Stock Exhcange: You mean the Pacific Exchange. Its name was changed because 65 percent of its business now comes from trading stock options rather than stocks. In fact, it's the third largest stock-options exchange. On the stock side: It's one of five regional stock exchanges. Unlike the New York Stock Exchange, which handles all sizes of transactions, most of the Pacific's stock business is tied to small investors, with the average trade around 500 shares.

-- Memo: An item last week mentioned that "The Art of Short Selling" by Kathryn Staley was, to my knowledge, the only book on short-selling. Reader Jeff G. knows of another: "Tools of the Bear: How Any Investor Makes Money When Stocks Go Down." It's by Charles J. Caes, and according to Jeff, goes beyond short-selling to also cover puts and calls.